Since the economic crash of 2008/9, late payment of freelancer invoices by businesses has become a scourge of the freelance sector.
The best way to ensure you are paid on time is to set your terms and expectations at the outset and agree them with your client, and one point you need to clarify from the outset is that you charge interest on late payments.
It is important to ensure your clients are aware of this, so they are not unpleasantly surprised when they see it in writing for the first time.
You can claim interest and debt recovery costs if another business is late paying for goods or services. If you agree a payment date, it is usually within 30 days for a public authority or 60 days for a business transaction. You can agree longer than 60 days, but it must be fair to both businesses.
If you do not agree a payment date, the law states that payments are late 30 days after:
The interest you can charge if another business is late paying for goods or services is “statutory interest”. Statutory Interest is 8% plus the Bank of England base rate for business-to-business (B2B) transactions. You will need to send a new invoice to your client if you decide to add interest to the money you are owed.
Note: you cannot claim interest if there is a different rate of interest within a contract. Also, you cannot use a lower interest rate if you have a contract with public authorities1.
If your business is owed £1,000 and the Bank of England base rate is 0.5%:
You are also entitled to charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest for it, with the amount you can charge depending on the size of the debt. You can only charge a business once for each payment.
Amount of debt
What you can charge
|Up to £999.99||£40.00|
|£1,000 to £9,999.99||£70.00|
|£10,000 or more||£100.00|
If you have been forced to charge late payment interest on your invoices, but still have not received payment, then you might consider further action. Taking legal action of any kind can be expensive and, in many cases, it is seen as the last resort. Ask yourself if taking legal action is worthwhile and if the size of the debt justifies this course of action.
Legal action can be expensive and if the thought of handling a Small Claims Court petition fills you with concern, it may be wise to ensure you are covered by Legal Expenses Insurance. This freelance insurance policy includes legal assistance to help recover unpaid invoices.
With Legal Expenses Insurance, you have the backing of an entire legal team and the policy provides cover up to £100,000 for ‘any one claim’ to cover the costs incurred by a legal proceeding.
The Markel Law Hub is an online resource containing a range of documents and articles to help you manage the various laws you can encounter when running a business.
The Law Hub currently helps over 50,000 users and contains:
There are two ways you can access the Markel Law Hub.
1. Simply purchase a Legal Expenses Insurance policy from us with prices starting from £75.00, which we think is a small price to pay, it only takes a few minutes via our online system.
2. If you do not require Legal Expenses Insurance but feel that you would benefit from access to the Law Hub, you can purchase an annual subscription for £189.00 +VAT. Click to the Markel Law Hub here for details.
If you are interested in our Legal Expenses Insurance policy, click the green button below to get a quick online quotation or call us on 0333 321 1403.